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Why the Detroit Red Wings’ proposed new arena is $86 million too expensive

Capture

I like most of the plan for the Red Wings new arena. I like the proposal for it to be built downtown, surrounded by an entertainment district. I like that it will fill the gap between downtown and Midtown. I like that it will supposedly create 8,300 jobs and I like that the arena should lure more concerts. 

I just have one question.

Why does it have to be so friggin’ expensive?

The $650 million plan calls for a $450 million stadium. Accounting for inflation, that would make it the sixth-most expensive hockey/basketball arena in the country, and the second-most expensive one-team venue behind the Orlando Magic’s Amway Center.

Now this wouldn’t be a problem if the whole thing was funded by private investment. It’s not, though.

Public funds will account for 44 percent ($286 million) of the project. That’s entirety of the entertainment district and another $86 million towards the arena. To be fair, this on the lower end of public money going to stadium projects, but Detroit is on the lower end in terms of financial stability. Why not keep that $86 million?

It’s not like it’s going to earn a return on investment.

According to Crain’s Detroit, project backers say the arena itself is expected to create 5,500 jobs and generate $1.8 billion in economic activity for the area. But you should know by now not  to believe the numbers, and that most studies show arenas have negligible affects on the area. Most of those jobs will be temporary, only being needed for the construction phase. Just six months ago Olympia Entertainment Executives, the very company pushing for the new stadium, estimated the arena itself would generate just 440 jobs.

The only entity proven to profit off of a new arena is the owner of the team that occupies it. Crain’s estimates a new arena will give the Red Wings a $5 million to $8 million increase in revenue per year. They’ll also get to skirt property taxes yet again by having the city own the arena.

While this application provided by the state is out of date, it can give us a rough estimate of the difference between the Red Wings owning and renting. If Mike Ilitch owned the arena and just $20o million of the $450 million was taxable, he would have to pay over $17 million a year in property taxes. Instead, at the maximum he’ll like pay a couple million in rent.  The Red Wings pay just $450,000 a year for Joe Louis Arena.

Also, when the time for a new stadium comes around again, the anchor of an arena that no one knows what to do with will be the city’s problem, not the Red Wings’.

I don’t care that no City of Detroit or Wayne County general fund money will be used for the project. The Michigan Strategic Fund is still issuing 30-year bonds. Think about that. The state (which owns the Michigan Strategic Fund) is going to be paying off the stadium for the next 30 years. You know how out-of-date Joe Louis Arena feels? It’s 34 years old. By the time this arena is paid off, the Red Wings will be ready to move into another one.

Wouldn’t it be easier to not give away $86 million?

Why not let the private investors build a $364 million stadium? It would still be in the top 10 of most expensive basketball/hockey arenas in the country, ranking fourth among one-team venues. It would still have all the unnecessary luxuries of a new-era stadiums. It would still draw the concerts back into down.

Most of all, it would be a small victory against sports welfare.

*(When the value of a property increases, tenants obviously pay more in property taxes. A tax capture is when the government takes the difference in property taxes paid from one year to the next to pay its debts. So if you pay $1 million in property taxes one year, and $1.25 million in property taxes the next, the government will take that extra $250,000 to pay the money it owns. It’s a common practice that leverages future rises in property value for money now.)

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3 comments on “Why the Detroit Red Wings’ proposed new arena is $86 million too expensive

  1. LOL . The owner of the redwings has 2.4 billion dollars . He also owns the detroit tigers . And owns a very popular pizza place ( Little Ceasers ) So Nonthing is too expensive .

    • But he’s asking the City of Detroit, which has up to $20 billion in long-term debt, for $284.5 (and it could go to $346.5) million to build the arena, an arena he’s going to profit off of, not the public.

      I never said anything was too expensive for Ilitch, I was just calling into question why he was asking the city for so much money when, as you mention, he has $2.4 billion.

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